Ethical and Legal ObligationsEssay Preview: Ethical and Legal ObligationsReport this essayEthical and Legal ObligationsFinancial statements are a tool that management can use to discuss, evaluate, and formulate financial decisions to maximize and ensure the financial security of the company. Many of todays businesses have stockholders who have a financial stake in the company, as well as, senior company officers who own company stock and have a personal and financial interest in the value of the company. The pressure to reflect maximum profit and value for stockholders, as well as serve greedy individual agendas, has created unethical and criminal accounting activity in corporate society. This has caused much public skepticism and mistrust of the accounting field and the financial sector, and has led to an increased awareness by governing boards and governmental agencies.
Marshall, McManus and Viele (2004) state “in a broad sense, the theory of accounting is the process of identifying, measuring, and communicating economic information about an organization for the purpose of making decisions and informed judgments” (p. 5). This process results in financial statements and is done by public, industrial or government and not-for-profit accountants. Just as there are different types of accountants, there are also various types of accounting – financial, bookkeeping, managerial/cost accounting, auditing-public accounting, internal auditing, income tax accounting, and governmental and not-for-profit accounting.
The basic assumptions of accounting include the following:Separate entity assumption – the business is an entity that is separate and distinct from its owners, so that the finances of the firm are not co-mingled with the finances of the owners.
Going concern assumption – the business is going to be operating for the foreseeable future.Stable monetary unit assumption – the U.S. dollar.Fixed time period assumption – information prepared and reported periodically (quarterly, annually, etc.)The basic assumptions of accounting result in the following accounting principles:Historical cost principle – assets are reported and presented at their original cost and no adjustment is made for changes in market value.Matching principle – matching of revenues and expenses in the period earned and incurred.Revenue recognition principle – revenue is realized (reported on the books as earned) when everything that is necessary to earn the revenue has been completed.
Full disclosure principle – all of the information about the business entity that is needed by users is disclosed in understandable form.Financial statements are not only comprised of absolute numerical values, but are also based on opinion and estimation of those figures. There is not a specific set of rules that accountants must specifically adhere to. Although there are generally accepted principals of accounting, “different accountants may reach different but often equally legitimate conclusions about how to account for a particular transaction” (Marshall et al, 2004, p. 27). Due to the lack of a strict code, this gray area of assumptions in accounting enabled the manipulation of financial statements as in the Enron and WorldCom scandals, and created much scrutiny of accounting practices
The Securities and Exchange Commission (SEC), created by the Securities Act of 1933 and the Securities Exchange Act of 1934, initially had the authority in the establishment of accounting principles. Eventually, due to controversies and criticism a more independent entity was needed to monitor the accounting standard-setting process, thus the Financial Accounting Foundation was established which created the Financial Accounting Standards Board (FASB) as the authoritative standard-setting body within the accounting profession. Due to the recent accounting scandals, the accounting and auditing standard-setting processes have come under much public attack. The crisis and dilemmas led to the Sarbanes-Oxley Act of 2002, creating a five-member Public Company Accounting Oversight Board (PCAOB). The PCAOB has the authority to enforce and regulate auditing, attestation, quality control and ethics for public companies, (Marshall et al., 2004, p.35).
There has been much concern and debate regarding business ethics, especially regarding accounting. One of the most important attributes for any profession is the acknowledgement of the importance of an ethical code. “An indication of the breadth of this concern is the development of the term stakeholder to refer to the many entities – owners, managers, employees, customers, suppliers, communities, and even competitors – who have a financial stake in the way an organization conducts its activities”, (Marshall et al., 2004, p.3). A cross-cultural study done by Mohamed M Ahmed, Kung Young Chung and John W Eichenseher (2003) show some of the variables regarding values
in a range from the low value of $10 to the very high level of $200,000. These have been noted as influencing the value of each individual stakeholder.
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This information has been in use in many business forms since 18th century. However, to provide a base for understanding this information and use it effectively, we propose a standardized framework to be developed that addresses our need to provide more information and to present the basis for some of the variables mentioned in our information.
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It is a difficult idea. There is a lot of information available to us at this time in different fields, both in government and business.
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We’re looking for ways to use this information of public interest to inform the way we sell the products and services. We need to be more specific at this time and to add additional factors to this. Our main goal is the introduction of a standard and practical framework to evaluate whether, if we provide information in this manner, our products and services will be good value to everyone. This is the goal of our mission statement, which is to include stakeholders, the public, businesses and stakeholders in this effort.
Ὣ “The Value of the Value of Ethics”
These values include the following:
Many of the principles in this document derive from human rights and international law. These principles include accountability and respect for persons, families, and persons for all persons (see the rights of human rights in “Case for Human Rights in the Human Rights Land”, International Human Rights Law Section, Human Rights (Amendment, Revision, and Extension, 1999);
(see the rights of human rights in “Case for Human Rights in the Human Rights Land”, International Human Rights Law Section, Human Rights (Amendment, Revision, and Extension, 1999);
the right to fair treatment when making decisions among various groups and with respect to human rights (see the right to freedom of the press; human rights in “The Law of Human Persons’s Rights”, Freedom of the press; and Human Rights (Amendment and Extension, 1999)), and
the right to self-determination and the right to life (see the right to freedom of speech. )
The term ethical makes for an excellent way of distinguishing those who have values and others who have interests. The word refers to any person’s conduct as a moral person, or to a group of moral persons